Neutral Citation Number: [2009] EWHC 2744 (Ch)
Case No: 7340/2008
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 06/11/2009

Before :

MR JUSTICE BRIGGS
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	IN THE MATTER OF INTERNET INVESTMENT CORPORATION LIMITED AND IN THE MATTER OF THE INSOLVENCY ACT, 1986		

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Mr Philip Goldsmith appeared in person as the Petitioner
The Company appeared by Mr Richard Scott, a director and shareholder

Hearing dates: 27th-28th October 2009
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Judgment
Mr Justice Briggs:
INTRODUCTION
1.	This is a Petition for the compulsory winding up of Internet Investment Corporation Limited (“IIC”) on the just and equitable ground.  The Petitioner is a Mr Philip Goldsmith, who is the holder of a minority of the ordinary voting shares in IIC, and the only holder of a block of non voting preference shares.  The Petition has been opposed by a Mr Richard Scott, who is both the majority shareholder in IIC and its only director.  He claims to be authorised by IIC to oppose the Petition, pursuant to the resolution of a special general meeting of members of the company held on 27th October 2008 and attended by himself and his son Robert, who is also a minority shareholder.  I shall refer to Mr Richard Scott as “Mr Scott”.
2.	Both Mr Goldsmith and Mr Scott have conducted these proceedings from their inception as litigants in person, albeit in Mr Goldsmith’s case with some legal assistance in the background.  They both took considerable trouble to prepare and make available to the court concise and well arranged bundles of relevant documents, including written submissions.  They both conducted themselves at the hearing, in making submissions and cross-examining each other, with admirable brevity and (for the most part) focus, notwithstanding their evident intense dislike of each other.  The result has been that the issues between them have been sufficiently deployed and explored with greater economy than is, in my experience, typical of petitions of this kind, and at a tiny fraction of the cost which would have attended the same dispute if the parties had been professionally represented.  For that they are both to be congratulated.
3.	Both Mr Goldsmith and Mr Scott gave oral evidence on oath, by affirming the truth of previously signed statements, and by giving oral evidence under cross-examination.  I found Mr Goldsmith a thoroughly reliable witness.  His oral evidence broadly confirmed his signed statements, and was for the most part corroborated by the documents.  He was ready under cross-examination to acknowledge and withdraw aspects of his written evidence which went in certain respects beyond that which he could, from his own knowledge, assert (rather than suspect) was true.  He was determined not to invent that which he could not recall, and he maintained a calm and collected response to cross-examination which was from start to finish designed to put a case against him that he was dishonestly presenting a concocted account.
4.	By contrast, although Mr Scott was, more often than not, brief and direct in his answers to cross-examination, I found when comparing his evidence with the documents, and considering the probabilities of the matter, that I could not place significant weight upon any of the oral evidence which he gave, save where corroborated either by documents, or by consistency with Mr Goldsmith’s own evidence.  In short, wherever their testimony conflicted, I have no hesitation in preferring that of Mr Goldsmith to that of Mr Scott.
THE PARTIES’ CASES
5.	Mr Goldsmith’s case, in a nutshell, is that having in 1999 contributed the only significant financial investment into IIC, in the form of two payments of £50,000 each, he has thereafter, despite reasonable inquiry, consistently been refused any information as to the use and deployment of that investment by IIC, save for vague assurances that all was well, and that for some years prior to the presentation of the Petition, his inquiries were met with nothing but aggression and abuse by Mr Scott.  The result is that he now suspects that his investment has been misappropriated rather than merely lost in a bona fide but unsuccessful business, and even that IIC was formed as an instrument of a premeditated fraud upon him by Mr Scott.  He claims that nothing other than a compulsory liquidation of IIC will give him any prospect of having Mr Scott’s custodianship of its business and assets properly investigated, or any prospect of him ever obtaining any return on his investment.
6.	Mr Scott’s case is, in summary, that Mr Goldsmith was afforded full information orally about the company’s affairs until he refused to sign an extended confidentiality agreement in relation to them, that he has since been the author of his own misfortune in failing to attend annual general meetings of the company over several years, and that the contents of the Petition are nothing other than a fraudulent presentation by Mr Goldsmith of himself as a naive investor, seeking in reality to arrogate to himself the control of the company’s affairs, to the prejudice of its interests.  
7.	In fact, at the same general meeting at which Mr Scott claims that IIC entrusted to him its opposition to the Petition, its members also unanimously resolved that the company be placed in members’ voluntary liquidation.  No steps have been taken towards the appointment of a voluntary liquidator, pending the hearing of the Petition, but Mr Scott’s case is that if the breakdown in trust and confidence between himself and Mr Goldsmith means that the company must be wound up, its interests, and those of all its shareholders, would be better served by a voluntary, rather than a compulsory, liquidation.
THE FACTS
8.	I shall not attempt a comprehensive description of the history of IIC, or the relationship between Mr Goldsmith and Mr Scott.  One of Mr Goldsmith’s main purposes in seeking IIC’s compulsory liquidation is that relevant aspects of that history should be properly investigated, so as to determine the truth or otherwise of suspicions of his as to Mr Scott’s conduct which, at present, he acknowledges that he is unable to prove.  I shall therefore confine myself to such findings of fact as are either not in significant dispute, or, if they are, are necessary for the determination of the question whether IIC should be wound up compulsorily.
9.	In 1999 Mr Goldsmith was engaged to be married to Mr Scott’s daughter, and he learned that Mr Scott was engaged in the promotion of an internet related project (“the Project”) for the furtherance of which he would welcome investment.  Mr Goldsmith was at the time and had for a long time been employed as a civil servant in the Home Office, and had savings to invest.  I make no findings as to which of Mr Goldsmith and Mr Scott made the running in the discussions which ensued, and which led to Mr Goldsmith paying £100,000 to Mr Scott personally by cheques drawn at his direction on an account of Bristol and West International Limited at Lloyds TSB Bank (Guernsey) Limited on about 1st September, and on 22nd October, 1999.
10.	It was, or became, common ground that on or about 1st September and 19th October 1999 Mr Goldsmith signed more or less identical agreements with Mr Scott in relation to each of the two sums of £50,000.  The 1st September agreement may be summarised as follows.  It was recited that Mr Scott was the developer and beneficial owner of a pending patent, and that proposals were under active development for the launch of the processes contemplated by the patent, described as the “Cybertime Processes”, throughout the world on the internet.  That is what I have described as the Project.  The agreement recited an intention that an international holding company to be named Cybertime International Corporation (“CIC”) was to be formed to incorporate those proposals for which, pending incorporation, Mr Scott was described as the Trustee and Agent.  Finally, the agreement recited that IIC was to be incorporated “for the purpose inter alia of managing fund raising to further the Cybertime project” on terms set out in an accompanying schedule.
11.	The operative part of the agreement was as follows:
“Now it is agreed and ended (sic) between The Parties that in consideration of subscribing for 50,000 £1 Redeemable 5% Preference Shares and 250 £1 Ordinary Shares in the said Internet Investment Company, payment for which is hereby made to Richard N. Scott as Trustee and Agent for the said Internet Investment Company, Richard N. Scott undertakes to transmit the funds to the said Internet Investment Company on its incorporation in exchange for the issue of the shareholdings agreed above to Philip Goldsmith …”
12.	The Schedule referred to was headed “Agreements to be Enacted for the Cybertime Project”.  It recorded that IIC was to be incorporated with a capital of 2,000 £1 Ordinary shares (voting) and 200,000 £1 Redeemable 5% Preference Shares (non voting), that subscribers for each 1,000 Preference Shares should be entitled to purchase 5 £1 Ordinary Shares in the company at par subject to a 2 year option in favour of a purchaser yet to be nominated to repurchase the shares at £10,000 per share.  IIC was to undertake to set aside 50% of its net profits to redeem all or any outstanding Redeemable Preference Shares.
13.	The Schedule continued as follows:
“4.	On incorporation the Internet Investment Company will enact the following agreements with Richard N. Scott in his capacity as Trustee and Agent for an International Holding Company provisionally entitled Cybertime International Corporation.
4.1.	In consideration of the Internet Investment Company providing all and any funds up to a maximum £200,000 sterling to the said Richard N. Scott in his capacity as Trustee and Agent for the said Cybertime International Corporation, the said Richard N. Scott or his nominated successors will secure the issue to the said Internet Investment Company of ______ FIVE% of the Authorised Share capital of the said Cybertime International Corporation immediately following incorporation of the said Cybertime International Corporation, and will secure payment to the said Internet Investment Company of a management fee £2,000,000 sterling as provided in paragraph 2 below.
4.2.	4.2	Subject to a first charge of £50,000 sterling due to Interactivity Ltd as provided for in an agreement dated 16th December 1998, payment of the management fee of £2,000,000 sterling will be satisfied from a charge on ten percent of the net profits of the said Cybertime International Corporation.”
14.	On the same day Mr Goldsmith signed a confidentiality agreement, undertaking for five years to keep confidential all information relating to the Project, the existence of the pending patent and the discussions between himself and Mr Scott.
15.	On or about 19th October, Mr Goldsmith signed similar agreements in respect of the second £50,000 tranche of his investment, IIC having in between those two dates been incorporated on 29th September 1999.
16.	Mr Goldsmith received the certificates for two blocks of 50,000 preference shares.  There are issues about the precise terms as to coupon and redemption which I need not now resolve.  It is common ground that he also received 500 Ordinary Shares.  Annual returns at Companies House suggest that at all material times Mr Scott held 700 Ordinary Shares and that his son Robert held 25 Ordinary Shares.  Mr Scott also became the company’s sole director.
17.	Mr Goldsmith’s evidence, which I accept, was that despite request he was told nothing more about what had been done with his money, until the hearing of the Petition, save what he could glean from IIC’s annual accounts.  Its accounting reference date was 30th March in each year, and the accounts for the years ending March 2000 to 2003 inclusive all showed, under current assets, £101,225, described as “cash at bank or in hand”.  For each subsequent year the same amount was shown as an investment.  Mr Scott acknowledged in cross-examination that £100,000 of the £101,225 referred to as cash at bank or in hand represented Mr Goldsmith’s two payments.  Apart from the additional £1,225 neither the accounts nor Mr Scott suggested that IIC had any other significant source of funds.  I shall describe in due course Mr Scott’s own evidence, in cross-examination, as to what happened to Mr Goldsmith’s two payments of £50,000 each.
18.	Mr Goldsmith was briefly employed by IIC in 1999, but thereafter returned to work at the Home Office. Following unsuccessful attempts to do so orally, Mr Goldsmith began making written inquiries as to the affairs of IIC, progress in relation to the Project, and as to the use which had been made of his £100,000 by letter dated 14th March 2002.  Beginning in December 2004, inquiries were pursued on his behalf by his solicitors. Copies of the written inquiries and responses appear in the two trial bundles.  
19.	The gist of Mr Scott’s written responses may be summarised as follows.  First, he asserted that Mr Goldsmith had been kept sufficiently informed orally.  Secondly, he said that Mr Goldsmith would not receive significant further information unless he entered into a further confidentiality agreement.  Thirdly, he suggested that Mr Goldsmith would ascertain the information he sought by attending annual general meetings of the company, which he then proceeded to arrange to be held in West Cornwall on 29th December in and after 2005, notwithstanding that he lived in Milton Keynes, and Mr Goldsmith lived in London.  Finally, Mr Scott adopted an increasingly hostile, belligerent and abusive tone in his written replies to inquiries, accusing Mr Goldsmith of various forms of dishonesty, posturing and self-serving spin without, as far as I have been able to ascertain, the slightest justification.
20.	Wholly absent from Mr Scott’s responses to Mr Goldsmith’s reasonable inquiries was any meaningful information, either about the progress of the Project, the affairs of IIC or as to what had become of Mr Goldsmith’s £100,000 investment.  Mr Scott could not at the hearing of the Petition point to any document in which such information had been provided to Mr Goldsmith, and I reject his evidence that meaningful information was provided orally.
21.	After an unsuccessful attempt to persuade the Companies Investigation Branch of the Insolvency Service to investigate the affairs of IIC, Mr Goldsmith presented the Petition in August 2008.  Mr Scott’s response was to call a Special General Meeting of IIC for 27th October 2008 at which, in Mr Goldsmith’s absence, he and his son voted in favour of the voluntary liquidation of the company.  I am in no means satisfied that the formal requirements for placing IIC in voluntary liquidation were fully complied with, but for present purposes I shall assume without deciding that they were.
22.	Mr Scott’s plan was that the company should be placed in members’, rather than creditors’ voluntary liquidation, and to that end he made a declaration of solvency on 23rd October 2008, in the following terms:
“I have made a full inquiry into the Company’s affairs and, having done so, I have formed the opinion that the Company will be able to pay its debts in full now, because the Company has no debts.
The only asset of the Company is its right to receive proceeds in due course under clauses 4.1 and 4.2 of a schedule of Agreements dated 1st September 1999.
The only liability of the Company is to account to the contributories for the proceeds receivable under the clauses 4.1 and 4.2 above, and to disburse the net proceeds to the contributories.”
23.	The first occasion upon which Mr Scott provided any explanation of what had become of Mr Goldsmith’s investment of £100,000 in the company occurred during his cross-examination by Mr Goldsmith.  His account was, in summary, as follows.  On receipt of the first cheque for £50,000 Mr Scott had attempted to open an account for IIC at the Penzance branch of Lloyds Bank, but had been refused because of the Bank’s stated suspicion, based upon the identity of the drawer of the cheque, and the Guernsey base of the bank upon which it had been drawn, that the money might be the proceeds of money laundering.  Mr Scott therefore took the cheque to his own branch of Lloyds Bank at Milton Keynes and paid it into his personal account.  He said that he regarded this as a legitimate shortcut since clause 4.1 of the Schedule of Agreements (which I have recited above) provided for IIC to transfer any investment funds to himself as Trustee and Agent for CIC, but he readily admitted that, contrary to the terms of the Schedule, CIC had not been incorporated during the ten years which have elapsed since Mr Goldsmith’s payments were made, although he said (wholly unrealistically in my judgment) that he considered that there was still a prospect that it would be incorporated in the future.
24.	Mr Scott also paid the proceeds of Mr Goldsmith’s second cheque into his personal account.  By the end of 1999 he had expended some £45,000 of the total in the development of the Project, mainly by paying salaries of computer programmers.  He said that he spent the rest of the £100,000 during the following four to five years, so that it had been exhausted by 2004-05.  He acknowledged that, contrary to the clear impression to be derived from its accounts, IIC had never opened a bank account or held any money in its own name, and that it had received nothing in writing either from himself or (of course) from CIC in return for the £100,000 which had been expended on the Project.  When I asked him against whom the company’s rights referred to in his Declaration of Solvency were exercisable, he volunteered without prompting that they were exercisable against himself.
25.	I have summarised Mr Scott’s evidence about what became of Mr Goldsmith’s money in order to show that, by his own admission, the money was not dealt with in accordance with the agreement between Mr Goldsmith and Mr Scott pursuant to which the money had been paid to Mr Scott, nor indeed in accordance with the statement in IIC’s accounts for the years prior to 2004, to the effect that the money formed the bulk of the company’s cash at bank or in hand.  Nonetheless, I make no positive findings as to what in fact Mr Scott did with Mr Goldsmith’s money, save that he received it, as provided by the agreements, as Trustee and Agent for IIC and that, by failing to pay it into a bank account opened in the name of IIC, he committed a breach both of those agreements and of his fiduciary duties to the company.  Beyond that, Mr Scott’s use of that money is a matter to be investigated. The same investigation will need to consider whether Mr Scott incurred to IIC the liability of a promoter of the still to be incorporated CIC, having sought to justify his personal receipt of Mr Goldsmith’s money as the receipt by himself as an agent or trustee for CIC.
THE LAW AND ANALYSIS
26.	Section 116 of the Insolvency Act 1986 provides that the voluntary winding up of a company does not bar the right of any creditor or contributory to have it wound up by the court; but in the case of an application by a contributory the court must be satisfied that the rights of the contributories will be prejudiced by a voluntary winding up.
27.	It is well established that, in considering whether the court should order a compulsory winding up in preference to a voluntary winding up, a reasonable requirement that the company’s affairs should be scrutinised by the process which follows a compulsory order may weigh strongly in favour of a compulsory liquidation.  The decisions to that effect are identified in footnote 4 to paragraph 15.110 of Palmer’s Company Law, and are mainly concerned with petitions by creditors rather than contributories.  Nonetheless I see no reason why the principle is not equally applicable to a contributories’ petition subject to the requirement that the contributory demonstrate to the court’s satisfaction that the contributories’ rights would be prejudiced by a voluntary winding up.
28.	In the present case, on the facts which I have described and in the light of the evidence tendered by Mr Scott, I am entirely satisfied that this is a proper case to order a compulsory winding up of IIC, rather than to permit it to be wound up voluntarily pursuant to the resolution to that effect passed by Mr Scott and his son.  In my judgment, Mr Scott’s stewardship (if that is at all an appropriate word) of IIC’s affairs cries out for thorough investigation.  Not only has he deliberately obstructed the reasonable inquiries of the major financial investor in IIC as to his conduct of its affairs, by a process of belligerence, abuse and obstruction, but he appears also by his own admission to have falsified IIC’s accounts by signing accounts for the years until 2003 purporting to show that Mr Goldsmith’s investment was represented by cash at bank or in hand, whereas he now says that he had paid it to himself and then spent it.  He has also admitted having dealt with Mr Goldsmith’s investment in a manner disclosing both a breach of his agreements with Mr Goldsmith, and a breach of his fiduciary duties to the company.  Finally he has also volunteered the fact that IIC’s only asset consists of rights (identified by those agreements) against him personally.
29.	In those circumstances I consider it plain that the continuation of a voluntary liquidation pursuant to a resolution passed by Mr Scott and his son, in which it may reasonably be apprehended that as majority shareholders they would have the whip hand, for example in the choice of a liquidator, would be prejudicial to the rights of the contributories as a whole including of course Mr Goldsmith’s rights.
30.	Mr Scott’s only submission to the contrary was that a voluntary liquidation would be less likely to imperil a beneficial outcome to the Project than a compulsory liquidation.  I regard that prospect as entirely speculative.  It seems to me that, in reality, IIC’s rights consist in substance of claims against Mr Scott for breach of fiduciary duty and/or for breach of contract as a promoter of CIC, rather than in any real expectation of deriving a return from a shadowy Project which has not, on the evidence before the court, be shown to have advanced in any material sense for ten years.
31.	IIC must therefore be wound up compulsorily.  Advertisement of the Petition may be dispensed with.  There appear to be no creditors, and the only contributory who has not appeared, Mr Scott’s son, appears from the minutes of the general meeting held in October 2008 to be well aware of the Petition.